We have a resolution — of sorts.
Back in June, Manchester City took the Premier League to independent arbitration, claiming that the existing associated party transaction rules (APT) were unfair. This is a separate case to the 115 charges hanging over City — but could have important ramifications for its parent issue.
On Monday, after four months of waiting, the verdict of the three-man panel was publicly delivered.
Both the Premier League and City are claiming significant victories while minimising their defeats — so where do we really stand?
How did we get here?
City’s desire to take the Premier League to arbitration could be viewed as them opening a new front in their long-running legal battle against the Premier League.
The reigning champions feel as if the existing financial fair play rules unfairly limited their ability to strike lucrative sponsorship deals, because they place limits on relationships with partner companies with which they share common ownership.
Instead, these potential sponsorship deals with associated parties — APTs — must conform with fair market value, with teams submitting their costings to the Premier League to see whether the deal complies.
With these rules tightened after Newcastle United were taken over by Saudi Arabia’s sovereign wealth fund (PIF), City felt as if the regulations in their new guise were anti-competitive and therefore unlawful.
Opening the hearing in June, City’s lawyers referred to the law changes as “fear-mongering”, while in a 165-page legal submission seen by British newspaper The Times, they argued that they have suffered “discrimination” as a result of the new rules, alleging they amounted to a “tyranny of the majority”.
City’s sponsorship network has historically been tied to figures who sit on the board of the City Football Group (CFG), meaning that APT rules affect them much more than other Premier League clubs.
The arbitration hearing in June took two weeks. City’s legal team was led by Lord Pannick KC, amongst the country’s highest-paid lawyers, who is currently representing the club in the ongoing hearing against 115 charges of breaking the Premier League’s financial rules.
Hearing the case were Sir Nigel Teare, Christopher Vajda KC and Lord Dyson — the latter two were also on the board for the FA’s dispute with football agents over FIFA’s new regulations late last year.
According to their judgment, eight other Premier League clubs provided supporting evidence in the proceedings — with Arsenal, Manchester United, Liverpool, West Ham United, Brentford, Bournemouth, Fulham and Wolverhampton Wanderers all supporting the Premier League.
What’s happened?
The judgment shows that it was delivered to both City and the Premier League on September 25 — just under two weeks ago.
In the intervening period, both sides have had time to digest, and are desperate to make it appear as if they won the day.
For example, while City released a statement containing eight bullet points, each purporting to be a major win, the Premier League asserted that “the tribunal upheld the need for an APT system as a whole and rejected the majority of Manchester City’s challenges.”
The headlines are these — we’ll get into the detail in the coming sections.
Firstly, the panel was supportive of the concept of APT laws — seeing them as a necessary part of PSR regulations. City were not successful in getting them thrown out as a broader concept.
However, the panel did find procedural issues in how two of City’s applications were handled — potential deals with the airline Etihad and the First Abu Dhabi Bank (FAB) — concluding these were unfairly blocked.
Additionally, in potentially the most significant finding from the case, the panel also ruled that interest-free shareholder loans should fall under APT laws — which City argue will bring other clubs in line with the level of regulation they face. More on that later.
What points did City win on?
Broadly, the panel found there were three areas where the Premier League’s rules were unlawful, or where decisions were reached in an unfair manner.
Benchmarking
This is a procedural detail. Clubs must submit all deals to a fair market value test — but currently do not have the opportunity to view the data which the Premier League benchmarks it against beforehand.
City argued this denied them “the proper opportunity to make informed representations”, while the Premier League stated this had been done because of “the confidential nature of the proposed transactions”.
The panel sided with City — though in practice, the judgement reads more like a negotiation between the parties, with the Premier League assured that certain information could be shared pre-submission as long as existing confidentiality processes were respected.
Nevertheless, because the Premier League had previously blocked this, the rules as written were found “unlawful” because they were “procedurally unfair”. This will be a simple rule tweak.
However, the implication is that two of City’s deals which were rejected under this framework — sponsorship agreements with Etihad and FAB — were found to have been blocked unlawfully, because City were denied the opportunity to respond to the existing benchmarking analysis.
Near the end of the judgement, the panel concludes that City have the right to pursue damages — potential losses from these deals are liable to be explored.
Decision-making delays
Under the existing system, the Premier League has a timeframe by which they must respond to all APT applications.
City claimed this was breached in three cases — the previously discussed deals with Etihad and the FAB, as well as another separate agreement with Emirates Palace, a government-owned subsidiary which owns a luxury Abu Dhabi hotel.
Here, the Premier League exceeded the 25-day guidance, citing a lack of resources within their own regulatory team.
The panel concluded that though there was no evidence that City lost an APT transaction because of these delays, nor had the club shown that other potential sponsors had been spooked by the prospect of delays, the Premier League had still broken its own laws during the Emirates Palace and FAB transactions by creating an unreasonable delay.
The Etihad deal was not included after the Premier League dropped any objection to the application. This is another area where City could seek damages — however, it will not lead to a law change.
Shareholder loans
This is the most significant part of the judgement — necessitating a rule change which may have major implications for other Premier League clubs.
Within their judgement, the panel were tasked with defining exactly what constitutes an associated party transaction (APT).
City argued that, as well as sponsorship deals, shareholder loans should also be taken into account. Historically, these have been excluded from the APT rules.
Shareholder loans are when a club borrows money from its ownership group — with many teams doing this interest-free, benefiting the club because they will subsequently owe a smaller amount.
For example, as of 2022-23, Arsenal have borrowed £259million in shareholder loans from their owners, Kroenke Sports & Entertainment, while Everton’s interest-free loan from majority shareholder Farhad Moshiri now stands at around £450m. Brighton & Hove Albion’s owner, Tony Bloom, has invested over £400m in interest-free loans since taking over the club in 2009.
City claimed this was a major competitive advantage — the sort of loophole which APT laws were already cutting out when it came to sponsorship deals.
Their argument was that this distorts PSR calculations — as a matter of principle, an interest-free loan cannot be fair market value.
In an early submission, they made the case that if APT laws were restricted to only APTs from Gulf states, it would be discriminatory — so why should APT laws be restricted only to sponsorship deals, rather than shareholder loans?
The independent panel agreed with them, declaring “we can see no difference in principle between that situation and limiting the ambit of the APT rules to exclude shareholder loans”.
As a result, they stated that the exclusion was “unlawful” — and correspondingly, the Premier League’s laws will need to be changed.
In theory, this means that when interest-free shareholder loans are included within PSR, some of City’s rival clubs may have to rebalance their books in order to avoid a breach. More on that later, too.
Additionally, because the panel stated that the Premier League reached the decision to exclude shareholder loans deliberately, this constituted a breach of competition law “by object” — which City sources claim is more serious than “by effect” (i.e. inadvertently).
Legally, this amounts to an abuse of the Premier League’s dominant position, which City can utilise as evidence in any damages claim.
In the Premier League’s response to this part of the judgement, they noted that excluding shareholder loans was voted for by 19 clubs — including Manchester City.
What points did the Premier League win on?
City’s challenges to APT laws were far more widespread than the points they won above.
For example, City claimed that APT rules were “inherently incapable of capturing the specific features” of some agreements and amounted to “price fixing” which was a restriction on their earning potential.
This was given short shrift by the panel, who stated that: “it is difficult to see how the PSR can be effective without such a mechanism”.
The judges also concluded that the fair market value regulations, as written, were “clearly defined, transparent and non-discriminatory”. City’s win on the Premier League’s delays came because they had broken their own rules, not because of any essential issue with the rules themselves.
Significantly, the panel also rejected several submissions from City which argued that they had been the victims of bias.
For example, they stated both that the Premier League regulatory team “can be relied upon to conduct (fair market value tests) competently and fairly without any perception of bias” and that they “do not find that APT rules were targeted specifically at clubs in the Gulf region”.
City would have a far stronger case for damages if both these had gone against the Premier League.
What does this mean for the 115 charges case?
The fact that the panel did not find that the Premier League’s rules surrounding fair market value regulations were flawed — only that they had not complied with them — means that this decision is unlikely to have any significant ramifications on City’s ongoing 115 charges.
That case — which covers an array of alleged financial misdemeanours extending far beyond just APT, all of which City deny — started in London’s International Dispute Resolution Centre on September 16 and is expected to last around two and a half months.
The final verdict is not anticipated to arrive until well into next year, and even then will be subject to appeal. In the meantime, both sides will presumably be trawling the APT ruling to see if anything may aid their case.
What happens next?
There will be one major rule change — the integration of shareholder loans into existing APT laws.
Under competition rules, clubs will need to formally vote for this at the next Premier League meeting.
This will have the greatest effect on teams who have previously benefited from interest-free loans — clubs like Everton, Arsenal, Brighton and Chelsea. If this change in the rules is passed, they will subsequently have less PSR wiggle room than previously thought and will have to adjust their spending accordingly.
It will not signal an APT free-for-all when it comes to sponsorship deals, with the mechanism for deciding fair market value deemed broadly fair.
Though City might argue that having additional access to benchmarking data will allow them to maximise deals, they will still only be maximising them within the existing APT framework.
They will, however, be able to seek damages for their three wins — access to benchmarking, unfair delays to sponsorship deals, and the implementation of shareholder loans in APT.
However, it is highly unlikely that the amount they would be paid, should they pursue damages, would be any great needle-mover in the power dynamic of the league.
(Top photos: Getty Images; design: Dan Goldfarb)
